[Ferro-Allloys.com]

  China's stainless steel mills face higher costs for essential ingredient ferrochrome if, as expected, South Africa goes ahead with proposals to impose taxes on exports of chrome ore to help protect its smelting industry.South Africa's government is seeking ways to support its ferrochrome smelters, which industry sources say employ 68,000 people and contribute 13.8 billion rand ($898.27 million) to state-owned power utility Eskom's revenue.Ferrochrome prices CESFc1 in China climbed above $900 a tonne on Nov. 9, the highest since July last year, and a gain of 6% since South Africa proposed the tax on Oct 22.

  Two industry sources said a tax will not undermine South Africa's dominant position in the chrome industry as China relies heavily on the country. South Africa supplied 12.5 million tonnes of chrome ore to China last year or more than 80% of Chinese imports."Ferrochrome smelters are struggling with Eskom's price hikes," said CRU analyst Tomislav Bucic, adding that China, the world's largest ferrochrome and stainless steel producer, will bear the brunt of any export taxes."Increasing costs at Chinese smelters would lead to lower production, particularly in Southern China, where costs are higher. In turn, this could lead to higher imports of ferrochrome from South Africa."CRU estimates China produced nearly 6.1 million tonnes of ferrochrome last year, while South African output totalled 3.6 million tonnes.China could invest in other countries with chrome deposits, such as Zimbabwe, but its stainless industry will continue to rely on South Africa as the home of the world's largest reserves of relatively easily extractable chrome ore.Stainless steel on average contains 70% nickel and 20% ferrochrome, for which there is no substitute yet.

  "An export tax effectively targets Chinese ferrochrome producers in an attempt to return cost competitiveness to South African smelters," Roskill analyst Nils Backeberg said in comments posted on Roskill's website early this month."The key assessment with regards to the tax is that, without significant support and stimulation to grow South Africa's ferrochrome output, the benefits may be short-lived."

• [Editor:Catherine Ren]